At record high! Nifty Financial Services emerges as best-performing sector in H1 2025, rallies nearly 16%

Mint

3 days ago

The Indian financial services sector stood tall in the first half of 2025, emerging as the best-performing space among broader market segments. The Nifty Financial Services Index surged almost 16 percent year-to-date (YTD), outpacing other sectoral peers and underscoring investor confidence in the sector's robust fundamentals and improving macroeconomic backdrop.
The index touched its record high of 27,249 in intra-day deals today, reflecting a sharp 22 percent rally from its 52-week low of 22,320.85. With a 1.5 percent gain in the most recent session, the momentum remains strong as the broader market sentiment benefits from easing geopolitical risks, falling crude oil prices, and a weakening US Dollar Index, all of which are encouraging foreign portfolio inflows into Indian equities.
Domestic institutional investors (DIIs) have also been steadfast in their support, adding to the rally. Market optimism is further fueled by hopes of a healthy revival in corporate earnings in the June quarter of FY26, particularly in sectors like banking, insurance, and diversified financials.
In the past one year, the Nifty Financial Services Index has jumped 14 percent, with sustained upward momentum seen over the past four months. It added 2.7 percent in June so far, following gains of 1.5 percent in May, 4 percent in April, and 9 percent in March. The index did see some moderation early in the year, declining by nearly 1 percent in both January and February.
Among the 20 constituents of the Nifty Financial Services Index, only three stocks were in the red during H1 2025. Leading the charge was SBI Cards, which rallied a robust 47.5 percent, followed closely by MCX, which gained 41 percent in the first six months.
Other major gainers included Bajaj Finance, Bajaj Finserv, Cholamandalam Investment and Finance Company, and SBI Life, each of which delivered gains of over 30 percent in 2025 so far.
Stocks like Kotak Mahindra Bank, Shriram Finance, Muthoot Finance, HDFC Life, and HDFC Asset Management also delivered healthy returns in the 20–30 percent range, reflecting broad-based strength in the financial services sector.
However, a few laggards dragged the index slightly. REC emerged as the worst performer, declining nearly 20 percent, followed by PFC, which dropped 6.6 percent, and ICICI Prudential Life Insurance, which shed just over 1 percent.
One of the key developments supporting sentiment in financial names was the Reserve Bank of India's (RBI) announcement of final guidelines on project finance, which significantly toned down earlier draft proposals. According to Motilal Oswal Financial Services (MOSL), the most notable change is the relaxation in provisioning norms for under-construction loans.
'The final guidelines are much milder than expected and won't apply retrospectively,' MOSL said, noting that loans with financial closure already completed will continue under the old provisioning framework. This change provides relief to lenders and removes overhang on asset quality concerns for under-construction projects.
MOSL also highlighted that the revised standard asset provisioning now stands at around 1–1.25 percent, down sharply from the initially proposed 5 percent. During the operational phase, provisioning further eases to 0.4–1 percent depending on project type.
Among non-banking financial companies (NBFCs), PFC and REC are likely to benefit the most due to their high project loan exposure and adequate provisioning buffers. 'As of March 2025, Stage 1 and 2 provisioning stood at 1.13 percent and 0.95 percent, respectively,' MOSL said.
Other financial players such as Bajaj Housing Finance, LIC Housing Finance, Piramal Enterprises, and L&T Finance could face higher provisioning costs from October 2025 onwards, but these are likely to be passed on to borrowers, easing the impact on profitability, MOSL added.
Overall, the sharp rally in the Nifty Financial Services Index in H1 2025 highlights renewed investor faith in India's financial sector. As macro headwinds ease and regulatory clarity improves, the sector appears well-positioned for sustained performance. With corporate earnings recovery on the horizon and robust support from both foreign and domestic investors, the momentum in financial services stocks could persist through the remainder of the year. Key names like SBI Cards, Bajaj Finance, and MCX are already leading the charge, and broader tailwinds may continue to lift the sector further.
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